The White House and top HHS officials say the Medicare policies outlined in the president’s Oct. 3 executive order will enhance the program’s fiscal sustainability. If you believe that, I have some cheap land next to Mar-a-Lago to sell you.
The order calls for a six-month study to “identify approaches” that move Medicare fee-for-service payments close to “the prices paid for services in Medicare Advantage and the commercial insurance market.” The president also gave the HHS secretary six months to recommend a transition to “true market-based pricing in the FFS Medicare program,” including “using MA-negotiated rates to set FFS Medicare rates.”
Here’s what one healthcare lobbyist told me she scribbled in her notes about those contradictory statements: “?!?!?!”
There’s a simple explanation for her reaction. According to the two most recent Medicare Payment Advisory Commission reports, average Medicare FFS payments to physicians are about 75% of commercial rates.
Hospitals are even further behind. MedPAC says hospital margins for all payers were 7.1% in 2017, even though their margins on Medicare payments were a negative 9.9%. The spread between commercial and government rates are at least as high for hospitals as they are for docs.
Therefore, the idea that moving FFS payments closer to commercial rates would save taxpayers money or lead to “fiscal sustainability” is absurd on its face. It would sharply increase government Medicare payouts—perhaps by a hundred billion dollars a year—and give a comparable windfall to employers who offer private plans.
An honest study would inevitably point that out. Perhaps that’s what HHS Secretary Alex Azar and CMS Administrator Seema Verma had in mind since most of the rest of the executive order seemed designed to move more seniors into MA plans and move FFS rates toward MA rates. In 2018, 34% of all beneficiaries were covered by an MA plan.
What are those rates? Well, no one has a complete picture. MA plans only know the rates they pay each provider in a market, not what other insurers pay. Hospitals and physicians only know the rates they collect from each insurer, not what other hospitals or physicians collect. Neither side is willing to discuss or disclose their rates.
Curiously, the government, which pays the bills, has no idea, either. As MedPAC noted in its September report, the last MA encounter data received from insurers (which would include both use and price data) is useless “given the data errors and omissions that we found.” Good data would provide a foolproof way of learning whether plans are making their money by stinting on care or cherry-picking among potential enrollees, which CMS has raised as a concern.
MA plans have no interest in paying hospitals and physicians more than FFS Medicare. That would jeopardize their margins, which, barring stinting and cherry-picking, depend on paying less and being more efficient than uncoordinated FFS medicine.
Many providers say MA plans are paying less, especially in markets where they’ve succeeded in establishing narrow networks. Yet the executive order calls on HHS to “remove unnecessary barriers to private contracts that allow Medicare beneficiaries to obtain the care of their choice.” Narrows networks in MA plans are beneficiaries’ primary barriers to choice. Ending them would drive MA prices higher, not lower.
It’s notable that the word “transparency” did not appear once in the executive order. Nor did transparency for MA plan data surface in the administration’s proposal to revamp the anti-kickback laws, which called for lifting rules that can stand in the way of providers revealing prices to patients.
The executive order began with a 350-word diatribe against Medicare for All, which stands no chance of passage. It’s fair to conclude its mishmash of contradictory ideas was an election-year political statement, not a substantive policy initiative.
